The maximum capital gains tax (CGT) rate of 28% could be raised close to income tax rates, in some instances 45%.
The prospect of bringing CGT into line with income tax has been touted for some time.
The move could raise up to £14bn for The Treasury.
However, the proposals also included cuts in the profits that equity investors can make without paying any tax, and other technical adjustments which would raise inheritance tax bills.
According to The Office for Tax Simplification 97% of CGT tax revenue is paid by over 35s, with most people paying it in their 50s and 60s.
Rachael Griffin, tax and Financial Planning expert at Quilter, said the speed at which the report has been produced is a clear indicator that the government sees the need to urgently reform CGT.
Ms Griffin said the proposed changes could lead to wealthy individuals choosing to transfer their wealth earlier, rather than waiting until death.
She said: “Proposals, such as scrapping CGT uplift on death, have far reaching consequences and need to be considered carefully. One of the biggest challenges of tinkering with the CGT system is its interaction with several other parts of the tax system, in particular inheritance tax, so many changes can be complex and have knock-on consequences for other parts of the tax system.
“CGT uplift means that CGT is overlooked when an individual dies and they hold taxable assets that have gone up in value. This is because when the assets are transferred to someone else, normally a spouse or family member, they are ‘re-set’ for CGT purposes. Instead, the assets may be subject to Inheritance Tax.
"The OTS recognises that this is means that people are often holding onto assets until they die for the tax benefits. Removing or limiting this relief could be seen as a way to encourage wealth transfers to happen earlier, as well as raising significant funds.”
Investment platform AJ Bell has urged investors to be “on high alert” for a tax raid on capital gains as the government turns to repairing the huge hole in its budget.
Laith Khalaf, financial analyst at AJ Bell, said if the government choses to act on the report it could lead to a shift towards pensions and ISAs.
He said: “If CGT rates are increased, there could be a fire sale of assets as investors sitting on big gains seek to take advantage of current rates before any deadline for transition. Investors would also likely flock to pensions and ISAs, where gains are not subject to capital gains tax.”
Helen Jones, partner in private client tax services at accountancy firm BDO, warned that any changes to CGT could distort people’s behaviour as they chose to retain assets rather than trigger a tax charge.
She said: “Whilst simplicity is to be welcomed, some will say it causes more unfairness. It is hard for Governments to balance simplicity with fairness: a flat tax rate is simple, but whether it is fair that the wealthy pay the same rate of tax as those less well-off is a highly charged question."